Ladies and gentlemen, thank you for standing by, and welcome to the GrainCorp Half Year ’20 Financial Results. (Operator Instructions) Please be advised that today’s conference is being recorded. I’d now like to hand the conference over to your first speaker today, to Mr. Luke Thrum. Thank you. Please go ahead.

Thanks, Kevin, and welcome, everybody. Thanks for joining us for our half year results FY ’20. We’ve just lodged the materials this morning with ASX, so you’ve probably had a chance to have a quick look at them. I’m joined here today with our new MD and CEO, Robert Spurway. He’s 7 weeks into the job now.

Good morning, everyone.

And Alistair Bell, Group CFO, who you all know very well.

Alistair G. Bell, GrainCorp Limited – Group CFO [5]

Good morning.

So we’re going to go through the results, the key slides and then we’ll go to Q&A. And I’ll hand over to you now, Robert. Thanks.

Thank you, Luke, and good morning, everyone. My name is Robert Spurway, Managing Director and CEO of GrainCorp. We do have on the webcast a number of slides. For those that do have visibility of that, I will reference the slide numbers as we work through this very short pack, but we’ll also try to talk through the slide so that those on the phone can follow. Alistair Bell and myself will work through the slide pack. It will be a fairly short presentation. We’ll have time for questions afterwards, as Luke said.

So if we work through the pack and move straight to Slide 3, headed up, executing against our strategy, which is the headline results of GrainCorp’s half year 2020. It has been a very busy period and interesting time for GrainCorp in terms of portfolio repositioning. The successful demerger of the United Malt business is completed. The business completed the sale of the Australian Bulk Liquid Terminals business. And we are reporting a statutory net profit after tax of $388 million with, importantly, a very well-funded balance sheet at the half year.

In terms of our strategy and indeed building momentum, we are seeing strong resilience of the business through COVID-19, and we’ll talk to that in more specific detail shortly. We’re undertaking what we call a harvest readiness program, preparing the business for what we expect will be a much larger win across going into the F ’21 year. And the underlying results is benefited by the delivery on the operational initiatives, many of which were highlighted in the Demerger Scheme Booklet, and we’ll also refer through this presentation.

In terms of operational performance, the underlying EBITDA was $183 million, and that translates to an underlying net profit after tax of $55 million. And importantly, we reported 0 core net debt at 31st of March 2020. As I’ve said, strong underlying performance, a number of significant items, but in a strong position and a well-funded balance sheet.

We will finish the presentation with some further comments on the outlook. But just by way of prefacing that, we do see widespread winter planting across East Coast Australia, and that positions us well for the F ’21 year. We do need to highlight that obviously, the business is recovering from 3 years of severe drought across East Coast Australia, and that will be a feature of the second half with a small summer crop. And it’s likely that our results in F ’20 will be skewed towards the first half in line with tonnes handled. There are a number of operational initiatives that are being delivered, though. And the strong balance sheet that we’re reporting provides us with a strong platform for future growth.

If I hand across to Alistair now on Slide 4, the slide titled Creating a Platform for Growth. Alistair?

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Alistair G. Bell, GrainCorp Limited – Group CFO [8]

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Good morning, everyone. It’s pleasing to be here again. And as Robert alluded to, it’s a period of where we’ve done substantial repositioning. So the ongoing underlying operations has been really focusing on 2 key parts. One is about continuing to deliver on the operational initiatives. If you recall, we outlined these in detail in the Scheme Booklet. And down on Slide 16, we’ve provided further insights into how we’re tracking against each of those categories. I’ll come back shortly about — more about the benefits that we’re seeing when we overview the actual results.

Whilst the other key activity is, with the widespread planning that’s underway, the business is preparing early for the harvest readiness. The simple things to think about there is good lead time of ordering in tarps, making sure our plant and equipment is ready to — mobile equipment is ready to be able to handle the harvest that’s coming. There’s always a big recruiting program, and obviously, during these COVID times, we have to be mindful of ensuring that we’re recruiting in the local communities, as well as making sure they’re appropriately trained.

So I’ll just pass back to Robert, and he’ll provide an update on our COVID-19 events.

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Robert Spurway, GrainCorp Limited – CEO & MD [9]

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Thanks, Alistair. I did talk about the fact that the business is resilient through COVID-19. It is good to be in food and agriculture and have that defined as an essential service. GrainCorp is playing a critical role of supporting the food supply chain, both here in Australia and globally. We think about it in 3 areas: first of all, protecting our people, maintaining operations and protecting jobs. And I do want to make a special call out to the many people across GrainCorp that are keeping our business running in these times and practicing all the social distancing requirements and other proportion to keep themselves and our business safe.

The second area is, of course, our business continuity. We do, as I said, have ongoing supply chain and processing plant demand, and that’s remained very resilient. We’re pleased to be able to keep up with that demand and support our customers on our products and services through this time.

And then the third area is around our stakeholders. We are conscious that the impacts are right across the Australian economy, but GrainCorp has an important role to play, as Alistair said, in the harvest readiness for F ’21 but the benefits that that can bring to regional Australia through the resilience of our business and the likely employment opportunities we’ll be able to provide leading into the harvest period. So in summary, our business is very resilient for COVID-19, and our team are doing a good job keeping the business going and keeping up with the ongoing demand we’re seeing for our products and services.

We are here today, though, to talk specifically about the half year results. So I’ll hand back to Alistair to talk through in more detail the headlines I’ve already covered. We’re just moving to Slide 6 on the pack for those following the webcast.

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Alistair G. Bell, GrainCorp Limited – Group CFO [10]

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So on to Slide 6. It’s pleasing to report on the substantial turnaround in the underlying earnings, notwithstanding the third consecutive year of the drought. Just to remind everyone, the results include Malt for 6 months as well as the continuing operations of Agribusiness and Processing. This is the first time that we’ve reported under the new business segments. The result shows that the business is benefiting from the operational initiatives, and this includes the crop reduction contract for the first time; the new more flexible rail contracts that’s not only benefiting ourselves, but also the rail providers; with improving crush margins; and the plant performance across the growth has been in a strong position.

The underlying results show that we’ve got an EBITDA of $183 million, up from $27 million, and an underlying NPAT of $55 million. The earnings are skewed to the first half, in line with tonnes to be handled. As you have heard before, the small summer crop, and so we’re expecting that to be skewed — our earnings to skew to the first half. The other key part of the half has been the refinancing of the group. GrainCorp finished the half with a strong balance sheet with 0 core debt and as well as maintaining flexibility with a 10% interest in United Malt. The Board considered an interim dividend and is of the view it’s better to consider a dividend in line with our policy, dividend policy at the full year when times are more certain. Since we finished the half, GrainCorp is in a well-funded position.

I may just turn to Slide 7 to give some more insights into the turnaround. This is the first time we have presented the earnings bridge showing the new business segments. It really focuses on the continuing operations of Agribusiness and Processing. If we go to each of the stacks, in the Agribusiness, just to remind everyone, it was a period of drought, so lower volumes in a normal season. You can start to see the benefit of the Crop Production Contract, new rail contracts. This time last year, we are experiencing disruption to grain trade flows and that negative impact is not being repeated in the period.

For the first time, we’ve broken out the Processing, that’s the crush and the refining and the packing business. And you can see a substantial turnaround there coming a lot from the improved crush margins, as well as the steady performance of Foods and the manufacturing plants. That’s been good. In Corporate, we have included the fair value treatment of our interest in United Malt. So when adjusting for $16 million for the movement in the last week of United Malt, we had corporate costs of $6 million included there. So that’s a nice bridge, and shows you the benefit of the operational initiatives coming through.

Turning over to Slide 8. This gives some detail around the crop reduction contract. We felt that it’s important just to remind everyone around how we use the contract to manage the variability associated with the east crop production. Now details were provided in the Scheme Booklet, but this is the first year that it’s operated for us. It’s based on the ABARES East Coast Australia winter crop production. And as reported at the AGM, the ABARES in their February report had confirmed 11.4 million tonnes. That equates to approximately $58 million gross receivable, of which $52 million was received in the half. And when adjusting for the annual premium and then fair value, the overall contribution to earnings was $45 million in the half.

The next season is based on the June ABARES report that’s issued on the 10th of June. That’s their first report that will give insights into the fiscal year ’21 winter crop, that’s the crop that we typically harvest on the East Coast during the December quarter.

And just to remind everyone, there’s a cap collar situation where the maximum GrainCorp can receive is $80 million before any premium adjustment and pay-away is $70 million.

I’ll pass back to Robert now, and he will give you an update on the outlook.

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Robert Spurway, GrainCorp Limited – CEO & MD [11]

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Thanks, Alistair. So just to recap, a number of significant items and the $388 million profit reported for the half. But importantly, we are seeing the benefits of the initiatives come through in the underlying performance of the business and, as I said, strong balance sheet at the half year.

If we look to the outlook, and we’re on Page 9 of the presentation for those following on the webcast, we do expect that — and need to highlight the exposure that GrainCorp has to weather. The result of that, of course, is a smaller than average F ’20 summer crop on East Coast of Australia, and as a result, we do expect that earnings over 2020 will be skewed towards the first half in line with tonnes handled.

We are seeing reductions, and we expect those to continue in the imported demand from WA, SA and Victoria over the period. As many of you will be aware, we were able to reverse our network to support East Coast grain demand through the year. We expect that business will taper as we move to ’21 and the industry and GrainCorp sets up for a much stronger winter crop going into ’21.

We’ve got a couple of pictures here. The Bureau of Meteorology, of course, is very important for growers and indeed for GrainCorp. We are seeing very favorable East Coast Australia soil moisture pattern, and that is leading to widespread planting for the F ’21 crop across almost all regions of East Coast Australia. So that is encouraging as we look forward to next year. As we have talked about, what that means for GrainCorp is the focus on our harvest readiness program, making sure that our supply chain network is resourced adequately, both in terms of people and equipment to manage and indeed turn what we expect will be a much larger winter crop into value.

As Alistair said, if we look at the underlying business performance, the processing business and the strong margins we are seeing for oilseed crushing are expected to continue through the second half, and that is encouraging in terms of performance of our Numurkah plant in particular.

So that’s a summary of our results and some commentary on the outlook. At this point, we would like to move to any questions. And I’ll hand back to Luke and the moderator to manage that process. Thank you, everyone.

Robert, Alistair, well done on the result. I’m sure it reflects all the hard work from the team over the last 12 months in getting the business ready. I guess the 2 areas I’d be interested in delving into a little, if you could help us, is to understand, first of all, the progress that you’ve made on some of these cost reduction and business improvement initiatives. So if we go back to one of the earlier presentations, you were targeting somewhere between $55 million and $85 million EBITDA uplift in Agribusiness, and somewhere between about $15 million and $25 million in the Processing business.

So it looks to me on the Agri business result that excluding Canada, you’re probably coming in towards the upper end of some of those initiatives. But it would be good if you could perhaps just give us some sense, quantifiable sense as to the extent of progress that’s been made in Agri and Processing, please.

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Alistair G. Bell, GrainCorp Limited – Group CFO [3]

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Grant, thank you. I’m not in position to talk about specifics, but I’ll talk about the trends, and I refer you to Slide 16, where we’ve tried to provide additional commentary. Obviously, if you think about the categories of how we’re tracking against it, managing the variability, the new rail contracts, we’ve indicated a net $10 million to $15 million.

Even in this low volume year, we’re expecting to experience that sort of benefit.

Obviously, with larger volumes, we’d like to think there will be far more efficiency to both the rail provider and ourselves around that. And the Crop Production Contract, I went through the details around that piece. Simplifying the operating model, we’re well down the track on delivering those benefits. You can see some of those coming in the corporate cost area. But also, we are still in the process of rolling out the decision-making that supports both Agribusiness and Processing, and you’re starting to see the benefits of that coming through in the results. So I think it’s evident when you look back on the earnings bridge that we have.

The other part then is maximizing our assets, Processing, for the first time, we’ve seen a substantial uplift around the Processing. That’s the crush and the refining operations. And with improving crush margins and the performance of the plants there, we’re confident that the business is well on track to delivering where we’ve indicated previously. So I’ll just pass back to Robert. He can provide his insights as well.

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Robert Spurway, GrainCorp Limited – CEO & MD [4]

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Thanks, Alistair. I think you summed up the key areas being the Crop Production Contract, the flexible rail contract. Very importantly, the underlying performance of our processing business and the oilseed crush margins, and then also the cost savings, particularly in the Corporate area. We are on track across all of those areas. As Alistair said, there is more work to do in all of those areas through the second half, but the business is committed to fully delivering on those commitments made in the Demerger Scheme Booklet and there’s a structured program in place to ensure that momentum continues.

Okay. That’s really helpful. Just one secondary, if I could. There is, as you’d be well aware, a lot of debate around the difference between earnings per share and free cash flow in this business, just given how high the depreciation line runs. And I think in the scheme document, previously, you’ve indicated that CapEx would run well below that depreciation line. So that gives us a focus on free cash flow.

Are you able to sort of maybe, Robert, just talk — any initial comments around your thoughts on areas for investment in the business, whether you’re sort of comfortable with that sort of level of capital going into the business sort of over the medium term?

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Robert Spurway, GrainCorp Limited – CEO & MD [6]

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Yes. Thanks, Grant. As you’ll see in the results, we have reported CapEx in the half of $11 million. And we’re maintaining our view that a range of $35 million to $45 million, as published in the Scheme Booklet, is appropriate. It does move around, of course, from half to half, depending on the timing of projects. And there’s a number of relatively small projects that are in flight, ensuring the business completes its commitment to be ready for the harvest through ’21 as we gear up for that.

But in answer to your question, I’m very comfortable with the envelope in terms of the commitment we’ve made of, say, in business CapEx, and we’re on track for the full year to remain within that indicative envelope. One of the things, of course, we’ll be looking at from here is where the opportunities are for the business to grow. We look forward to updating everyone on our views through the second half, and particularly, at the end of the full year.

I wanted to talk a little bit about the industry and particularly the marketing side. And of course, we’ve seen a lot of saber-rattling mainly from China around threats to impose tariffs on Australian barley. I was just wondering if you could walk through the puts and takes of that potential impact, of course, both on the Agri business but also as you see it in your 10% holding in United Malt.

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Robert Spurway, GrainCorp Limited – CEO & MD [9]

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Thank you, Adam. Look, it’s an investigation in barley that’s been ongoing for some time. GrainCorp is working very closely with Grain Trade Australia and other industry groups on what is ultimately an industry matter. We’re not going to be drawn or get involved in the reasons behind it. Obviously, as any agricultural business or a business exposed to global trade, we’d like to see a level playing field. And we want to make it very clear that this is an ongoing investigation and ourselves and the industry are making sure that all the information is available to the Australian government and MOFCOM. And we would like to see an outcome that differs from some of the signaling provided by MOFCOM at the moment.

Ultimately, it is an issue directly for Australian growers, more so than GrainCorp. And that, of course, is of great interest to us given our support of those growers. But GrainCorp doesn’t have any material direct exposure, either in the results we just talked about or our outlook. So certainly, as I said, our desire to see a more favorable outcome than any tariffs being imposed. And we’re working with the industry groups to ensure that that’s the outcome that we aim for.

I’m not equipped to talk specifically about the United Malt business. Adam, that’s really a question for them in terms of their performance and outlook. We, of course, retain a shareholding in United Malt. But beyond that, we don’t have specific insights into that business.

Okay. Fair enough. That’s helpful context. And then maybe, Alistair , one housekeeping question. As I’m looking at the EBITDA bridge and trying to compare it, particularly around the operating lease accounting, there was a note in the release that there was about $16.5 million of expense that I think would now be below the EBITDA line and depreciation and interest that previously was in rental expense. I guess my question is, is that correct? And do we need to remove that when we’re looking at sort of like-for-like comparable for continuing operations?

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Alistair G. Bell, GrainCorp Limited – Group CFO [11]

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So like-for-like, there’s no impact on the operating profit line. There is some recategorization between EBITDA and the D&A and interest. And in Agri, it is $16 million. And you’ll notice in the half year reports, we elected not to restate prior year figures, and that flows through into the bridge as well.

Alistair, can I just pick up on Adam’s question around the D&A, are you able to give me, I guess, sense in terms of the EBITDA uplift you got at the divisional level, that 16.5%? Because — is that also including what’s in the Malt business? Because if I look at the D&A, it kind of looks like it does. I’m just trying to get a hand on how much the benefit was for EBITDA in Agribusiness, and how much of a benefit for EBITDA was in Processing.

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Alistair G. Bell, GrainCorp Limited – Group CFO [16]

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So the ongoing operations earnings in the half year report, Jono, is just GrainCorp. It does not include United Malt. And the uplift in depreciation year-on-year is typically related to the new accounting standard. That’s what kicked it up. It doesn’t mean that we’ve spent more capital. It’s just the impact of the accounting standard.

No, no, it’s all right, I’m just trying to — for my model and get it all right in there. So if I just up the D&A in each of those divisions, that should flow through and the interest I’m assuming has probably been taken at the Corporate that was like $3.5 million or something like that.

On the marketing side of the equation, and I noticed that there was a question earlier around the delivery on initiatives, but it does look like in that segment note 1.2, there’s quite a material movement in the realized and unrealized gains in the trading operations. So it’s up near $74 million positive this year, where it’s like a $64 million negative next year. And I realize you’re a trading business, but is that really the major driver here of the turnaround, is that you’ve actually had a really good outcome in terms of your positions in this year’s results as opposed to what you’ve generated, say, last year?

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Alistair G. Bell, GrainCorp Limited – Group CFO [26]

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Jono, there is always plusses and minuses between the physical and the derivative from half-to-half, season-to-season. So the key message though has been that there was a far smaller crop across the whole of Australia unlike this time last year, where WA had a substantially large crop. It’s a huge export task, and we saw disruption in trade flows come through. The market has adjusted and had adjusted for that throughout the last 15, 18 months. And with the smaller crop come smaller positions as we manage through our task.

Part of that task this year, similar to last year, was ensuring that we transship grain to support the East Coast domestic demand. That continued, not only from WA, South Australia, but also from Victoria. This time, we were able to utilize trains to run from south to north, but also transship through Fisherman Island back to Southern Queensland. So we’ve managed our risk positions differently. The detail of unrealized, realized does move around from half-to-half, as I mentioned. So that’s the key point there.

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Robert Spurway, GrainCorp Limited – CEO & MD [27]

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I think, Jonathan, from my perspective, the business widely reported the impact of that last year was disappointed in that result. So we wouldn’t expect to see that recur. Just one other clarification. You mentioned a figure of $16 million in relation to the value uplift of our holding in United Malt. Within that $16 million, the United Malt fair value adjustment is only $5.6 million. So it’s a much smaller piece of the overall $16 million. That detail, of course, is in the financial statements and on Page 22 of the half year financial report.

Okay. And look, looking into next year, if you look at grain prices domestically and the futures curve, where they’re indicating relative to international, if you have been able to deliver a trading result like this when it’s being against you, how, I guess, optimistic do you think you’re going to be next year when you’ve got upwards of $70, $80 a tonne tailwind in our pricing relative to where it was this year?

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Alistair G. Bell, GrainCorp Limited – Group CFO [29]

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So Jono, just to go back, recap on the last conversation, so it’s a modest contribution from our marketing activities in the half and this year across the small crops across the whole of Australia. And the charter barley embargo is a matter that’s been known in the marketplace. It’s not — so it’s been factored into all of the positions. And as Robert alluded to, we’re working with our growers.

As we think about next year, and we’ve made mentioned that planning is well underway and extensive, and indications are for a large possible crop, albeit there is plenty of weather to go between now and it’s in the bins. If that’s the case, you’ve got a large export task. And part of the large export task creates opportunities that we have to manage within the risk appetite. It’s all about — and we carry very small flat price risk. It’s all about basis risk and ensuring our assets have worked and it comes through. It will be good to have an export task, which we haven’t had in the last few years.

Just some minor questions around the numbers first and then some strategic stuff. Just on the numbers. Just trying to drill down, there’s about a $44 million uptick if you back out the CPC, rail Corporate, oilseeds and UMH and that sort of thing. And Jono’s questions around the marketing suggest there was only a minor tick up. And is there any other — so $1.5 million — or 1.5 million tonnes of volume in the first half. So I’m just trying to see where that $44 million comes from in the waterfall chart.

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Alistair G. Bell, GrainCorp Limited – Group CFO [32]

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Sorry, could you just walk me through, I struggle in calling your math…

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Robert Spurway, GrainCorp Limited – CEO & MD [33]

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Paul, it’s Robert here. I think I understand your question. So if you look at the uplift, there are — broadly speaking, about half of it is in the initiative associated with the Crop Production Contract. The other path that you referred to is in the nonrecurrence of trading performance issues in the prior period. So we’ve seen much more favorable trading conditions that are reported in this result against very negative results reported in the same period prior.

I suppose I’m just trying to match that up with the discussion that Jono and Alistair just had where there was only a modest uptick in the marketing earnings this year.

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Alistair G. Bell, GrainCorp Limited – Group CFO [35]

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Yes. Sorry, Paul, maybe I wasn’t clear to all. I said it was a modest contribution in the half. So obviously, we had reported a negative impact across the grain — the trade disruptions last year. And yes, not talking about trading losses, I’m talking about that disruption. That was highlighted. And this year, we would have been able to not — we’ve not repeated the same issue. But the overall trading position has been a modest contribution.

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Robert Spurway, GrainCorp Limited – CEO & MD [36]

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I’d maybe put it this way, starting from a 0 position at the modest uplift, half-on-half, it’s more significant as you just pointed out Paul.

Okay. And just the second half result, you’re talking about a skew. Are you going to do a modest positive number in the second half? Is that your aim?

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Robert Spurway, GrainCorp Limited – CEO & MD [40]

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Look, we don’t want to be drawn on specific numbers. We are still significantly exposed to volumes associated with the weaker summer crop. Alistair, do you want to provide any further commentary on that?

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Alistair G. Bell, GrainCorp Limited – Group CFO [41]

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Paul, we’d like to see how it progresses before giving any earnings guidance. If we need to, we’ll track consensus other than we just wanted to remind everyone that, typically, GrainCorp’s earnings are skewed to the first half. And as we think about second half, it’s a small crop, small tonnes to be handled. Although behind the scenes, we are preparing, getting ready for the harvest with widespread planning that’s been underway.

Understand. And then more on the strategic material, maybe for Robert. It’s a bit harsh after being here a short while, Robert. Where can you see, I suppose, the gaps and the opportunities with GrainCorp going forward? Obviously, there’s the internal improvement underway with the cost out that Grant was mentioning before. Where are the, I suppose, the step-outs and the strategic sort of moves that you might bring to GrainCorp?

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Robert Spurway, GrainCorp Limited – CEO & MD [43]

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I’ll speak generally on that, Paul, because as we said, it’s early to be drawn on the specifics. I think what I’d say, just as a starting point, is one of the things that we’ve emphasized in the restructuring and, ultimately, the demerger, was the importance of a strong balance sheet and a well-funded balance sheet and what ultimately is a business exposed to agriculture volatility.

So whatever strategic moves or growth initiatives we look at, one of the anchoring foundation principles will be maintaining a strong balance sheet in that respect. So does that mean we’re going to go out looking for big funded acquisition opportunities? Probably not. It doesn’t mean we didn’t look closer to home around partnerships and extensions of our existing business. That’s the flavor of the sort of strategic initiatives that we’ll be exploring. As we set out the direction, and as I said, we’ll be in a position to talk about that more clearly later in the year.

I think there are some obvious things that we’re doing right at the moment. I’m looking to understand the strength and weaknesses in the business. It’s very good to see the stronger underlying performance coming through in the business because that gives us the confidence, I guess, and the credibility to look at how we extend our exposure to those areas as may be appropriate for growth. And secondly, the obvious areas both in terms of vertical up and down the supply chain expansion, adjacent expansion or potentially geographic expansion, but all in that context of providing a conservative approach to protecting our balance sheet.

As I said, and as you touched on right at the start, Paul, I think it would be unwise to be drawn more specifically at this point, but it is a piece of work that we are undertaking, and we look forward to updating the market on probably around the time of the full year results.

Sorry, my question was largely taken. Just trying to understand sort of the extent of how the business is loss-making in the second half. And then do we also need to add some extra costs, did you say, with this next harvest coming through? Also, what was the positive EBITDA uplift for the rail contract in the half? I know you gave it for the full year.

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Alistair G. Bell, GrainCorp Limited – Group CFO [46]

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Prefer not to be specific on the rail contract, but it’s — we’ve indicated 10% to 15% for the full year, and the outload task typically runs through, on average, it’s about half-half. So you could factor it into your model that way. In terms of preparing to the next year’s harvest, we do a lot of planning now, ordering of tarps, making sure the equipment is ready, so there is a modest cost that comes in.

Typically, it’s more in quarter 4 that we really — and that’s when we get a better feel through how the winter season is gone, and obviously, the spring rains that come in late August and in September. So we try and manage our costs and — through that period.

First question is in the Processing business. Can you just give us — you mentioned strong crush margins, which is really pleasing to see after a very difficult PCP. But maybe can you give us some idea of where you see those crush margins relative to the prior few years? Obviously, ’19 was difficult, but if you go back a few years, how do those crush margins compare over the previous sort of 3 or 4 years?

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Robert Spurway, GrainCorp Limited – CEO & MD [49]

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The major factor, James, in that included in the crush margins is the throughput and the performance of our Numurkah plant. As you will be aware, there was significant upgrade side on that part. I guess in the early period of that, in prior period, there were some commissioning challenges. We’re now very confident in both the run rate and the performance throughput of that plant, which is supporting the overall contribution from those crush margins. Alistair, I don’t know if you’ve got more specific comments to make around that relative supplier period?

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Alistair G. Bell, GrainCorp Limited – Group CFO [50]

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Yes. The other dynamic, obviously, was the East Coast canola crop was more imbalance between supply, demand that allowed us to purchase the seed in a more orderly way. That’s the benefit. And preferred not to talk specifically around crush margins, but it was pleasing that we’ve seen it return to levels that we’ve — you would typically see in the East Coast Australia crush businesses.

Yes, that’s very encouraging given there’s probably still some upside to the size of the crop relative to prior year, so that’s a very encouraging outcome. Staying in Processing, so was a $2 million — if we look at the PCP, the $2 million loss for that first half ’19 result, and if I understood the demerger document correctly, I think there was a $17.5 million positive EBITDA for the full year. So just that delta and the implication of a much, much stronger second half ’19, as you’re cycling over that in second half ’20, what were the drivers of that big improvement in the second half ’19?

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Alistair G. Bell, GrainCorp Limited – Group CFO [52]

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Numurkah was operating for the full half. Last year, we were able to — we’ve procured out our seed in the second half last year, as well as that assisted the food manufacturing piece, which was at West Footscray. So it was a combination across all of the processing.

Okay. So it’s fair to say the quantum of improvement first half ’20 versus PCP probably wouldn’t be replicated in the second half, given you’ve already seen some of that benefit coming through in second half ’19?

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Alistair G. Bell, GrainCorp Limited – Group CFO [54]

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Yes, in a PCP way. As we think about our second half, James, it’s — we typically have some shutdown of plants as you run off old crop and getting close to new crop. So there is a slight — not that material, but there is a slight skew to first half over second.

Okay. Great. Now so second question, and please pardon my ignorance here. But a lot of the asset GrainCorp operates or owned, could you just remind me which assets you’re leasing that’s contributing to this AASB accounting impact?

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Alistair G. Bell, GrainCorp Limited – Group CFO [56]

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Well, there’s a combination of owned and leased. So some of the port sites are typically leased as our long-term supply agreement when we sold the Bulk Liquid Terminals, was deemed under accounting standards to be a sale and leaseback. So that’s added to the contribution. And some of our sites upcountry are also leased and not owned. It’s freehold.

Okay. That’s helpful. The final question I had just on the trading book. You made mention of the fact that the sort of overriding premise in your description of the contribution this year was in the context of still very small East Coast crop volumes. If I’m reading the presentation correctly, Slide 14 tells us that the trading book had grain sales of 4.6 million tonnes versus 3.9 million tonnes PCP. Is that the right way to interpret that line?

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Alistair G. Bell, GrainCorp Limited – Group CFO [58]

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So mate, just to restate your observation, when we talk about the marketing of grain, it’s not just the East Coast, it’s also the crop in Western Australia and South Australia was smaller than prior years. And we also have our origination in Canada and the Black Sea as well, it goes through. So overall, the 4.6% represents all of those areas, and it does — — the timing of sales can depend on the shipping programs and when they go.

Yes, understood. But certainly, still, it’s a reasonable uplift year-on-year and probably at least partly reflective of the increasingly international origination base and that business unit is pursuing?

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Alistair G. Bell, GrainCorp Limited – Group CFO [60]

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It’s also on the East Coast, it’s a balance with the East Coast, where we’re utilizing our assets to service the end consumer, the domestic demand. There hasn’t been a large export task, but we’ve been working with our customers to make sure that the appropriate grain supply when necessary.

Yes. Understood. And last sort of associated question then, if I look at the debt profile, the short-term commodity debt at $971 million, I mean, that compares to PCP. If you back out barley inventory from Malt, it’s about $864 million PCP. So again, that commodity debt financing up year-on-year, your sales volumes up year-on-year, I guess, those 2 lines moving in the consistent direction is partly obvious. Is that the right way to interpret it?

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Alistair G. Bell, GrainCorp Limited – Group CFO [62]

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I don’t have all the numbers in front of me, James. So — because the half year report compares to September. But typically the grain prices drive, it may not be necessarily volume. It can be the grain price that drives the fluctuation as well. So I don’t — I can pick up the conversation with you afterwards because I don’t have the numbers in front of me as you were describing.

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Operator [63]

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There are no further questions at this time. I’d like to hand the call back to Mr. Robert Spurway for closing remarks. Please go ahead.

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Robert Spurway, GrainCorp Limited – CEO & MD [64]

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Again, thank you for your time this morning, everyone. We are aware, of course, with social distancing restrictions, that our ability to meet with various stakeholders is somewhat limited. So in that context, we have posted on our website, a very brief video from Alistair and myself, that largely recap on what we’ve talked about today. But we look forward to being able to answer any other questions in the course of business over the coming few days. Thanks again for your time. Thanks for joining, Alistair, and good day, everyone.